Intel's lowered revenue projections bad sign for PC industry

The PC industry got another does of sour news Friday when Intel announced it's cutting its third-quarter revenue outlook.

The world's largest chip maker lowered its revenue forecast from an expected $13.8 billion to $14.8 billion for the quarter to $13.2 billion, plus or minus $300 million. The company blamed a reduction in supply chain inventory, a sluggish enterprise PC market and waning demand in emerging markets.

None of that is good news for a PC industry that has been repeatedly hammered by the growing popularity of small, cool tablets and several years of a slow economy.

"Intel is a bellwether of the overall health of the PC market and the cut of its revenue estimate certainly isn't a good sign," said Dan Olds, an analyst with The Gabriel Consulting Group. "Chips are the bellwether for tech. Right now, however, it looks like it's the PC segment that's sick, not the industry overall."

He was quick to point out that server demand, for instance, is reasonably solid.

"Customers are paying more attention to what they're buying and the associated price tags, but they're still buying," said Olds.

The fact that the PC market and the chip market are struggling comes as no surprise.

Late last month, industry analyst firm IHS iSuppli downgraded its 2012 forecast for the global semiconductor market based on slumping economic conditions and chip revenue. Analysts there noted that the worldwide chip market, which had been expected to grow by less than 3% for the year, is projected to decline by 0.1%

The downgrade for the chip market is relatively new, though.

In March, analysts at Gartner felt the industry was set for a solid turnaround this year, predicting that global computer chip revenue would reach $316 billion, a 4% increase over 2011.

IHS iSupply, however, isn't seeing that. And analysts there say the lagging PC market is largely to blame.

"The overall PC industry is challenged right now, including PC makers, distribution channels and component suppliers," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "This PC slowdown couldn't have come at a worse time, given the close proximity to the holiday selling season, where 50% of all consumer PCs are sold."

Rob Enderle, an analyst with the Enderle Group, noted that many PC makers may have scaled back production as they nervously wait to see whether Microsoft's Windows 8 operating system will be popular with buyers. That, he said, is one of several issues affecting the PC market, and hence the chip market, as well.

"It's the combination of tablets and an existing slowdown prior to a new OS," said Enderle. "The difficulty is that Microsoft's demand-generation program for Windows 8 hasn't kicked off yet, so no one is seeing demand for that product. If you look into the market, no one, not even Apple, is pushing traditional computers now and consumer buying continues to decline."

Not all is bleak, however.

Lenovo seems to be bucking the downward trend.

The China-based computer manufacturer has been quickly moving up the rungs of the list of top computer makers. While other companies have been struggling, Lenovo has been moving ahead.

"HP recently reported a 10% drop in its PC unit and we've seen Dell's PC business sliding, as well," said Olds. "The only PC vendor showing much growth is Lenovo, playing on their home court advantage in Asia.... I simply think people are taking a much closer look at all the technology they're buying and starting to ration their spending."

Charles King, an analyst with Pund-IT, Inc., was quick to note that the fourth quarter of this year is unlikely to look any better.

"It suggests PC vendors are preparing for lower demand in the final quarter of the year by reducing existing inventory rather than gearing up manufacturing," he said. "Given the overall importance of the holiday shopping season to the consumer electronics and PC industries, that's lousy news."